Termination of an employment may involve legal dispute between employee and employer. This may be settled by negotiation between the parties or by Court proceedings. In either event, the employer may agree to pay legal costs incurred by the employee.
In strictness, legal costs recovered from the employer in connection with an action for compensation for termination of employment are chargeable to tax under ITEPA 2003, s 401 as a payment on termination of employment. However, pursuant to ITEPA 2003, s 413A, payments in respect of such legal costs are specifically exempted from tax under ITEPA 2003, s 401, subject to specific conditions1. The following two conditions need
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